eMagin (EMAN #4), which over the past few months has bounced on and off our rankings, sells high-resolution OLED (organic light emitting diode) microdisplays for military, industrial, medical and consumer applications. Click here to read our November 22 profile.
Onyx Pharma (ONXX #16) is a biopharmaceutical company with a focus on cancer therapies. It currently has one product approved by the FDA and on the market: Nexavar. This drug, which was co-developed with Bayer Pharma, is currently approved for the treatment of liver cancer and advanced kidney cancer. Nexavar is currently approved in more than 95 countries for the treatment of advanced kidney cancer and in more than 90 countries for the treatment of liver cancer. Additionally, Nexavar is being investigated in several ongoing trials in a variety of other types of tumors.
Beyond Nexavar, Onyx has a development pipeline of anti-cancer compounds at various stages of clinical testing, most notably carfilzomib, a next-generation proteasome inhibitor, that is currently being evaluated in multiple Phase 2 clinical trials for multiple myeloma, a cancer that targets bone marrow. Onyx acquired carfilzomib with its November 2009 purchase of Proteolix for $276 million. Besides Nexavar and carfilzomib, Onyx also has two other compounds in Phase 1 testing: ONX 0801, an alpha-folate receptor targeted inhibitor of the thymidylate synthase, and ONX 0912, an oral proteasome inhibitor.
The stock spiked in early December on positive clinical results for carfilzomib, which shrank the tumors of about one-third of patients with multiple myeloma. Onyx plans to submit a New Drug Application (NDA) filing for carfilzomib as early as mid-2011 for potential accelerated approval in the US. If approved, carfilzomib would compete with Celgene's Revlimid and Thalomid, which have combined annual sales above $2 billion and Johnson & Johnson's Velcade.
Onyx believes that Carfilzomib by itself, has the potential to be a cornerstone of care in the $4 billion multiple myeloma market across multiple lines of therapy. Carfilzomib, along with ONX 0912, has the potential to change the treatment landscape from myeloma and make Onyx the key player in this rapidly growing field. This is a large potential market as multiple myeloma is the second most common hematologic cancer. There are more than 180,000 people living with myeloma and 86,000 new cases diagnosed annually. Researchers have made treatment advances in the last decade and lives are being extended. However, myeloma remains a fatal disease. As such, the company is excited about the potential of its compounds believing that carfilzomib could become the standard care in this important market.
On November 3, Onyx reported strong Q3 results. EPS jumped 140% to $0.84 while revenue rose 78% YoY to $122.9 million. However, the big jump in revenue is a bit misleading as this includes an upfront license payment from Ono Pharmaceutical for $59.2 million. Actual revenue from Nexavar actually declined to $63.7 million in Q3, down 8% YoY. Onyx says the global recession has impacted Nexavar sales. In the US, there was some impact from health care reform and increased competitive pressure in the kidney cancer market affected US sales. Outside the US, and particularly in Europe, government pressure on pricing is slowing revenue growth and Nexavar sales growth in Japan has fallen short of internal expectations. Looking ahead, in the US, Onyx expects Nexavar sales to grow in the single digits. However, the company believes there is a significant untapped market opportunity in Japan and China, with its leading incidence of liver cancer worldwide. Overall, Onyx expects double-digit growth in the Asia-Pacific region.
In sum, if not for the upfront license payment in Q3, Onyx would not have qualified for our rankings because we require at least 10% revenue growth. However, investors have been bidding up the stock, not so much for its financial results, but based primarily on the potential for carfilzomib. While Nexavar is promising, it's good to see Onyx branch into other therapies and carfilzomib appears to have some real potential.
Nova Measuring (NVMI #19), which was also added to our Stocks Under $10 rankings last week, is a semiconductor equipment company that is a play on the burgeoning demand for smartphones and tablets. The company believes that 80-90% of all chips in the iPhone come from wafers that its tools have measured, yet most investors are unfamiliar with this name. Click here for the full profile.
Newport Corp. (NEWP #22), which was recently featured in our Reasonably-Valued Stocks for 2011 report, is an interesting turnaround story. It's a former internet high-flyer, trading above $180 during the technology heyday. The stock collapsed after the bubble burst but the company has since diversified its business and is starting to flourish. After trading below $4 as recently as March 2009, the stock has made a slow and steady rebound since then.
Newport sells lasers, photonics instrumentation, sub-micron positioning systems, optical components, and subsystems. During the tech bubble in the early 2000's, it was seen as a play on the then fast-growing fiber optic network build out. However, its subsequent focus on diversification has resulted in an expansive product offering with more than 15,000 products serving a wide variety of industries including scientific research, aerospace/defense, microelectronics, life sciences and industrial manufacturing. NEWP operates two business segments: Lasers Division and Photonics (accounts for 40% of sales) and Precision Technologies (PPT) (60%).
Following weak results last year, Newport has been posting much stronger results over the past few quarters as it benefits from the overall recovery in the industrial market. Most recently, on October 27, NEWP reported Q3 EPS of $0.34, 36% above the $0.25 consensus and well above the $0.06 earned in the year ago period. Revenue rose 42% YoY and 9% sequentially to $125.2 million, its highest total in more than two years. Also, following five quarters of YoY revenue declines, revenue has been accelerating over the past three: +20%, +31% and +42%. Gross margins expanded to 43% in Q3 (up 300 bps from the year ago quarter) on improved leverage in manufacturing costs. Backlog is also showing momentum with order growth of 40% YoY in Q3 (second highest level in the company's history) and a book-to-ratio above one. In particular, its microelectronics business is doing exceptionally well, growing 71% YoY, as the company is seeing robust order activity from tier one semiconductor equipment customers. While the US still accounts for the majority of sales, the company is seeing rapid growth in China where it is gaining market share.
Looking ahead, management expects margins to continue to climb in Q4. While NEWP is clearly benefitting from the rebound in the overall industrial market, its industrial business has grown at a much faster rate than the macro economic environment would suggest. Still, it's important to note that the company has benefitted from orders funded by the stimulus bill, which the company expects started to wind down at the end of 2010. A concern with NEWP is its high debt level, which stands at $120 million, stemming from a $175 million capital raise in 2007 to fund the purchase of Spectra-Physics (microelectronics laser maker) and to repurchase shares. However, NEWP's debt/capital ratio has declined over the past two quarters (currently at 29%) and cash flows have improved. NEWP has also posted four consecutive quarters of positive cash flow.
Bottom Line: Newport has now reported back-to-back huge beats the last two quarters, showing that its business momentum is really starting to materialize. With the company expected to earn $1.04 in FY10 and $1.24 in FY11, the stock trades at current and forward P/E's of just 17.1x and 14.3x even including the stock's 75% run the past few months. We would prefer to see less debt on the books, but overall, we view NEWP as a cheap play on the recovery in industrial market.
NetSuite (N #24) is a provider of online, hosted (cloud computing) customer relationship management (CRM) and enterprise resource planning (ERP) software designed to help companies manage their businesses and automate their processes. NetSuite's software handles such functions as sales, customer communications, order management, inventory management, finance, e-commerce, time and billing, and Web site management. NetSuite does not provide any sort of on-premise services, it's all online. NetSuite started out on the very small end of the spectrum, really head to head against QuickBooks. However, it has evolved and has become more full-featured and moved up squarely into the small and medium sized business market.
The company has been implementing twin strategies of moving up market and expanding into new verticals. A big part of NetSuite's success in moving up market has been its NetSuite's OneWorld offering. OneWorld is the first and only cloud-based system to deliver real-time global business management and financial consolidation services to mid-sized companies with multinational and multi-subsidiary operations. With OneWorld, customers can manage multiple subsidiaries, business units and legal entities all from a single NetSuite account. It seamlessly handles different currencies, taxation rules, and reporting requirements at a fraction of the cost of traditional on-premise ERP services.
Following about ten months of trading sideways, the stock has been in rally mode since early July, up about 120%. A big catalyst for the stock has been back-to-back strong quarterly reports. Most recently, on November 4, NetSuite reported EPS of $0.04 vs $0.01 a year ago while revenue rose 19% YoY to a record $49.7 million. While the top line growth was not eye-popping, it marked the strongest revenue growth quarter since 1Q09. Following three quarters of low-to-mid single digit growth, NetSuite has posted 17% growth in Q2 and 19% in Q3. Overall gross margin improved to 73% while operating margin was 5.9%, both of which were the highest since the company went public.
On its earnings call, the company said its NetSuite OneWorld offering for multi-national enterprises had another great quarter as new business bookings came in at the second highest percentage ever, trailing only Q2's record performance. Also, NetSuite sold OneWorld to the highest number of customers ever in Q3, adding approximately 285 customers with average selling prices growing nicely over the prior year. The company is also experiencing its best customer retention seen in at least eight years. The company noted that the worldwide move to the cloud by companies seeking to operate their businesses more efficiently has been driving results.
A potential concern is the valuation. NetSuite is set to earn just $0.13 in 2010 and $0.22 in 2011, which translates into current (FY10) and forward (FY11) P/E's of 216x and 128x, respectively. Even if the company dramatically outperforms current estimates, this would still be a pricey stock.
[From Briefing.com]
Comments